Question

Pina Colada Corp bought equipment on January 1, 2017. The equipment cost $490000 and had an expected salvage value of $70000. The life of the equipment was estimated to be 5 years. The company uses the straight-line method of depreciation. The book value of the equipment at the beginning of the third year would be:______
a. 35750
b. 420000
c. 143000
d. 167000

Answer 1

Answer:

$322,000

Explanation:

For computing the book value at the beginning of the third year first we have to determine the depreciation expense using the straight-line method which is shown below:

= (Original cost of equipment - expected salvage value) ÷ (estimated life)

= ($490,000 - $70,000) ÷ (5 years)

= ($20,000) ÷ (5 years)  

= $84,000

In this method, the depreciation is same for all the remaining useful life

For two years, the accumulated depreciation is

= $84,000 × 2

= $168,000

So, the book value is

= $490,000 - $168,000

= $322,000

This is the answer but the same is not provided in the given options